Digital Music Sales Are Booming, But Industry Still Cites Piracy Woes

Global digital music revenue has grown 20,900 percent since the music business started keeping count in 2003 – but it still needs government protection to grow further, says the International Federation of the Phonographic Industry (IFPI), the industry’s main trade umbrella.

2009 digital sales hit $4.2 billion, or 27 percent of industry revenue – up from £20 million and a negligible share in 2003 – according to IFPI’s Digital Music Report 2010, published on the eve of the big Midem industry conference in Cannes, from which I will be reporting this weekend.

“It would be great to report these innovations have been rewarded by market growth, more investment in artists, more jobs. Sadly that is not the case,” writes IFPI CEO John Kennedy in the report. “Digital piracy remains a huge barrier to market growth.

“Our global sales fell by around 30 percent from 2004 to 2009, the growth of our digital sales is slowing and even the success stories … will struggle to survive unless we address the fundamental problem of piracy.”

Despite the growth, Kennedy cites gloomy research as evidence…
— 70 percent of music consumption in U.S., UK and France was digital – but “only” 35 percent of revenue (Capgemini).
— “Only” 18 percent of U.S. internet users aged over 13 regularly buy digital music (NPD) – and only eight percent of Europeans (Forrester).

Indeed, despite digital’s growth, overall global sales fell for the tenth consecutive year – digital revenue growth of 12 percent from 2008 exactly matched the drop in physical sales. In this year’s report, the federation even highlights piracy’s impact on other media, like movies and books, seeking to broaden a demand for anti-piracy action…

But Kennedy may get his wish – slowly, governments are coming around to the IFPI’s calls for legislation. Sweden’s IPRED law has discouraged six out of 10 pirates there, France will start issuing warnings and suspension notices to alleged freeloaders starting April and the UK is currently chewing over similar legislation. New Zealand, South Korea and Taiwan have implemented similar measures.

In truth, some mature singles markets are now mostly digital – a surge that has pushed music sales, by volume, to record high (here are UK figures and Sweden; the U.S. is 40 percent digital). But volume doesn’t equal income – digital tracks are cheaper than bits of plastic.

The digital growth over the six years since records began has come from an 11-fold increase in the number of tracks available (11 million) and an eight-fold hike in the number of legal retailers to over 400. But some of the big challenges are building digital in more analogue countries and successfully monetising the unlimited-access services that threaten to usurp a la carte…

On which point, much-hyped Spotify is being hailed by many equally as a saviour and as unlikely to make itself pay. The IFPI’s report, interviewing CEO Daniel Ek, reveals: “In the U.S., Spotify